US oil prices fell on Monday on growing confidence that Opec would boost output limits on August 1, and after Kuwait said the producers' group may consider more supply increases if the market remained strong.
US light crude dropped 33 cents to $39.63 a barrel, after initially losing up to one percent from Friday.
Kuwait and Algeria said at the weekend the Organisation of the Petroleum Exporting Countries would proceed with a planned 500,000 barrel-per-day (bpd) rise in official supply limits from next month even though ministers are due to review production policy in Vienna on July 21.
Yet, price hawk Venezuela said on Saturday the plan to raise output in August had to be evaluated and Opec would make a final decision at the July meeting.
Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah said Opec would consider further output increases and would discuss spare capacity among members at the end-July talks.
"Yes, we will try to increase but I think for August 1 it will be only the 500,000 (bpd)," Sheikh Ahmad said when asked if Opec would increase output if oil prices stayed at $40 for benchmark US crude.
"I don't know who has spare production. For Kuwait we are going to produce at our maximum. We will discuss in the July meeting, we have to look for extra production or spare production and which members have extra production to give to the market," he told Reuters.
Oil prices jumped to $40 a barrel again last week on nagging fears of supply disruptions in Iraq, Nigeria and Russia, where the biggest producer, YUKOS, faces possible bankruptcy.
Export schedules compiled by Reuters showed that 10 Opec members are set to pump an extra 170,000 bpd in July from June, taking them almost two million bpd above new official output limits now at 25.5 million bpd and due to rise to 26 million bpd from August 1.
Small export rises from the UAE, Qatar and Libya in July, plus near-capacity pumping from the rest of the cartel should lift production from 10 members with quotas from an estimated 27.2 million bpd in June, market sources said.
"Who really has spare capacity? Saudi Arabia is pumping 9.1 million bpd and has said that it could raise production to 10.5 million bpd. There is a little room but that is not much," said John Brady, a New York-based broker with ABN Amro.
"Overall, I still think the market is trending higher."
Brady said the market was taking as a given an Opec decision to raise output once prices hovered near $40, a view shared by other analysts.
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